Project Summary The hair follicle (HF) is an excellent model system for studying the molecular cross-talk between stem/progenitor cells and the microenvironment or niche. During embryonic HF formation epidermal progenitors in hair placodes receive niche signals from dermal condensates (DC), precursors of the mature HF mesenchyme, i.e. the dermal papilla (DP) and dermal sheath (DS). DP cells then act as niche for hair bulb progenitors to coordinate continuous hair growth and for bulge/germ stem cells to launch a new hair cycle. The role of the DS during hair growth is unclear. During the hair cycle, a subset of DS cells was recently identified that replenishes the DS and to some extent could contribute to the DP compartment when challenged by repeated depilation-induced hair cycling. Importantly, isolated mature DP cells can induce new HF formation after transplantation, a potential suggested for the DS as well, but incomplete cell tracing in grafts precluded definitive interpretation. Several key questions remain unanswered: What is the developmental lineage relationship between embryonic DC and mature DS and DP? What is the definitive HF induction capacity of DS? What are essential functions of the DS for initial HF growth? What are the molecular mechanisms that control DS functions? By employing the extensive transcriptome-knowledge and genetic tools we recently developed for embryonic DC and DP, we have now established with new preliminary data the conditions to answer these questions and rigorously test the hypothesis that the DS constitutes a distinct mesenchymal HF niche. With three dedicated Aims, we will determine the proliferative and clonal dynamics with pulse-chase label retention experiments throughout morphogenesis and by lineage tracing of selectively labeled single DC cells using established inducible Cre drivers and reporter mice. These studies will provide a rigorous assessment of the differential proliferative proclivity and lineage relationship of the DS and DP. We will then isolate for the first time simultaneously pure DS cells and DP using transgenic fluorescent reporter mice, systematically define the unique DS molecular signature and use defined and traceable cell grafting conditions to unequivocally determine their hair-inducing potential in established in vivo assays. Finally, we will investigate the functional role of the identified DS transcription factor Satb2 and other novel DS signature genes by in vivo gene ablation with our established inducible Cre lines. The results from these studies will reveal the dynamics and functional relationship of DS and DP niches, definitively determine the capacity of DS as hair-inductive mesenchyme, and achieve the first molecular insights into DS gene regulation. The ultimate goal of this work is to expand our knowledge of stem cell regulation by the niche, which in the context of the HF will be paramount for developing regenerative therapies to fully restore functional skin including HFs, a technology which currently is lacking due to our limited understanding of DP and DS regulation and function.